“In politics… never retreat, never retract…never admit a mistake” - Napoleon Bonaparte. These words spoken centuries ago still rings true to this day. But luckily for us when it comes to investing we can do all the above and always admit when we make investing mistakes.
The National Elections are upon us and the local market will certainly react to the results so what might be the worst-case scenario for my investment portfolio after the results?
The Politics of it all:
Well it might be no surprise to who the winner of the election will be, but by what margin will be key this time around. If the ruling ANC majority falls below the key 55% level and the opposing EFF wins more than 12% of the votes, it might just be what Moody’s has been waiting for. Failing State-Owned enterprises and wide spread corruption have been contributors to the volatility we have seen on the local market and the Rand (ZAR).
The Market Outlook:
ZAR - If history is anything to go by then we might expect our currency to gain strength a month before the elections and weaken over the following month. This time around we had seen none of that as the U.S Dollar gained strength (which therefore meant that the Rand lost momentum) as U.S President Trump Tweets away.
Moody’s – The rating agencies' next review is only set for later in the year but might move its decision to an earlier date if certain conditions are met. Some of the main factors that will be under the microscope will be State-Owned enterprises, especially Eskom, the social and political divide which puts a damper on policy uncertainty, and job creation.
If the outcome of the elections is not favourable to the broader market, we might see the credit rating agency downgrade SA to sub-investment grade. This would result in the forced selling of South African Bonds which would place the economy under immense pressure. This might encourage the ruling party to implement prescribed assets for our investments to try and stimulate the economy.
Portfolio saving grace – if we see the Rand under pressure, it might lead to pressure on the Financial and Retail sectors, but luckily all is not lost! Your portfolios' saving grace might be by hedging the currency risk by investing into Rand Hedged Stocks or the New Wave currency ETN’s at EasyEquities (below).
Click logos to view ETNs
Alternatively, invest directly in US stocks! Find out how to convert your Rands to Dollars on EasyEquities using EasyFX here.
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Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table.